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Pre-Holiday Rally Mode Looks Better than Losses, But Can It Continue?

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May 25, 2016

(Wednesday Market Open) The impressive rally that grabbed the markets Tuesday appears to be back today. The three major benchmarks are moving solidly higher again after U.S. stocks yesterday vaulted to their largest daily gains in three months, with financial and technology stocks leading the way. Will the pre-holiday rally continue?

If the low volume and lack of critical data are indications, it may continue, some analysts say. The troubling signs in the market today? Shares of Tiffany (TIF) are tanking after the luxury retailer turned in its sixth straight quarter of disappointing earnings. TIF executives placed part of the blame on the strength of the U.S. dollar, which is pinching shopping from foreign tourists.

What Fueled that Rally?

Upbeat housing data appeared to help power yesterday’s sharp turn to the upside in the markets. New-home sales spiked 16.6% last month to a seasonally adjusted 619,000, up from a revised 531,000 in March, according to the Commerce Department. For the second straight month, existing-home sales, which make up a hefty 90% of the housing market, shot up to an annual pace of 5.45 million. That’s the fastest purchase pace in more than eight years and appeared to catch the attention of investors.

What appeared to further bolster that was today’s report on mortgage applications, which climbed 2.3%, according to the weekly survey by the Mortgage Bankers Association. Home buying, not refinancing, drove the increases. Rates also edged up. Homebuilder stocks rallied on the news as did suppliers to homebuilders. So, too, did shares of home-improvement retailers Home Depot (HD) and Lowe’s (LOW).

When the markets settled, the gains were large, offsetting a few sessions of absolute malaise. The Dow Jones Industrials (DJIA) tracked higher by 213 points, or 1.2%, to 17,706. Nasdaq reveled in the largest percentage gain, advancing 2%, or 95 points to 4,861, while the S&P 500 (SPX) catapulted to 2,076, breaking that 2,050 resistance that has dogged it in previous session. The index added 28 points, or 1.4%, and now appears to be headed to the next important level of 2,100. But we’ve been here before, just two weeks ago as a matter of fact. And we know how that panned out.

West Texas Intermediate (CLN6) crude prices also reversed course, rising higher for the first time in five sessions as investors wagered that worldwide disruptions in supply would suck U.S. crude supplies. And they were right. The session ended with CLN6 higher by 1.1% to $48.62. Then the American Petroleum Institute reported that crude supplies did, indeed, tumble by 5.1 million barrels for the week ended May 20, far deeper than Wall Street’s expectations, according to MarketWatch. More numbers will come out today with the closely watched Energy Information Administration report but already oil prices are on the rise.

S&P 500

FIGURE 1: A BREAKTHROUGH, AGAIN

Yesterday's market rally pushed the S&P 500 (SPX), plotted through Tuesday's close on the TD Ameritrade thinkorswim platform, through the 2,050 resistance level it has struggled with, casting hope that it can plow through the next level at 2,100.  But we were here a month ago. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Massive Downer. Oh, no, says the Nasdaq to marijuana stock MassRoots (MSRT). The pot industry’s biggest technology platform—it calls itself the Facebook for cannabis users—got the thumbs down for its second attempt to take its over-the-counter Bulletin Board listing to Nasdaq. And MSRT isn’t happy about it, according to a press release it put out. Given the lack of clear federal laws covering marijuana sales, Nasdaq apparently feared that listing MSRT would be seen as aiding the illegal distribution of drugs in some states, MSRT said in the release filed with the Securities and Exchange Commission. (MSRT doesn’t actually sell marijuana or even touch the plant in any way.) The company said it will appeal. “With this decision, we believe that the Nasdaq has set a dangerous precedent that could prevent nearly every company in the regulated cannabis industry from listing on a national exchange,” MassRoots CEO Isaac Dietrich said in the release. “This will have ripple effects across the entire industry, making it more difficult for cannabis entrepreneurs to raise capital and slow the progression of cannabis legalization in the United States.”

Buh-Bye CCE. Coca-Cola Enterprises (CCE), the biggest bottler and distributor of the icon American fizzy soda, will no longer be part of the SPX as of the close of trading Friday. Why? Because it’s merging with two other global Coke partners to form Coca-Cola European Partners, with a new headquarters in Spain. That bars the new company from the index. CCE, though integral to it, is not part of the larger Coca-Cola Co. (KO), which is a blue-chip stock.

Robots at McDonald’s? Robotic devices are making their way into the restaurant industry, and a former chief executive of McDonald’s is warning that job losses could be massive if these Jetsons-like machines find spots behind the counter. “It’s cheaper to buy a $35,000 robotic arm than it is to hire an employee who’s inefficient making $15 an hour bagging French fries,” Ed Renzi was quoted in the UK-based Mirror saying. Is the future here?

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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